Thank goodness tax season is over. If the memory of hours spent hunting for and organizing paperwork is still fresh in your mind, maybe it's time to do some financial spring cleaning so preparing next year's taxes won't be such an ordeal.
Many people hold onto mounds of receipts and account statements because they're not sure when it's safe to toss them. (By toss, I mean shred -- don't give identity thieves any ammunition.) Here are several cases where you wouldn't want to lack proper documentation:
For taxes: The IRS has several periods of limitations during which you can be asked to produce records proving income, deductions or credits you claimed:
So, assuming you haven't committed tax fraud, you should probably hold onto back-up documentation for seven years, to be safe. These records include:
If you're self-employed or claiming deductions for business use of your home, be particularly diligent. IRS Form 552 contains detailed instructions on what to save and for how long.
What you can shred: Save ATM, debit and credit card receipts until you reconcile with monthly statements -- then heave-ho, unless you need as back-up for tax purposes. Keep pay stubs until you've reconciled them with your year-end pay statement, W-2 form and 401(k) statement.
Save bills if they're tax-related (e.g., if you claim a portion of your utilities for a home office); otherwise, you can probably toss them after you know your payment was processed. And save sales receipts and warranties for appliances, electronics and other major purchases and attach to product warranties and owner's manuals, at least until you no longer own or use them.
Long-term document retention: You should hold onto certain documents for even longer than IRS audit requirements. For example:
Different ways to save documents: You can always save actual documents and receipts. But if your goal is to reduce paper clutter, scan copies of documents and save them as PDF files. You can usually download statements and bills from companies' websites as PDF files as well.
For safety's sake, back up electronic "soft copies" on an encrypted flash drive or external hard drive in case your computer crashes. And, if you're worried about fire, theft or other disasters, store additional copies in a safety deposit box or with a trusted friend. Or use an online data back-up service. Some people save such documents as email attachments, but if your email were ever hacked, they'd be at risk.
Recordkeeping is no fun, but compared to the anxiety of tearing the house apart to prepare for an audit, it's a small price to pay.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial adviser for specific information on how certain laws apply to you and about your individual financial situation.
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